The Evolving US Economy and Household Debt

I want to start by thanking the conference organizers, both for inviting me and for putting together such an interesting program.

It is a pleasure to be given an opportunity to pull together themes from two areas that I have done a lot of thinking about—household debt and the evolution of the broader economy. I specialized in household debt for many years while I was at the Federal Reserve Board, having joined a group that focused on household finances in the early 2000s (when that topic was still seen as a sleepy backwater issue!). And, I have just finished 3½ years as the chief economist of the U.S. Treasury Department, where the causes and implications of broad economic trends were a key part of my work.

I will spend the first part of my talk on what I see as the implications of some trends in the economy for household debt tipping points. Some of these trends are probably making households more vulnerable to reaching tipping points, others make it more difficult for policymakers to mitigate the immediate macroeconomic fallout from reaching tipping points, and yet others make the longer-term effects of hitting tipping points more consequential than they have been in the past.

You will note that I am starting with the negative aspects of the situation, and I wanted to do that precisely because I have a captive group of smart researchers as an audience. My goal is not so much to alarm you but rather to motivate the need to continue to build on the excellent research that has already been done—before we reach the next tipping point.

In the second part of my talk, I will offer some more positive thoughts. In my view, there is good news regarding both the current state of household balance sheets as well as progress in financial regulation and other areas that should better protect households and the economy from household debt tipping points.

I will conclude with some unfinished policy business as well as other things we should be doing to reduce the likelihood that we reach tipping points and mitigate the consequences when we do so.